October 10th, 2014 7:30 AM by Jackie A. Graves
Consumers who are late on their mortgage payments have no
idea how badly their credit scores can be affected, nor how long it takes to
repair the damage.
FICO scores, the
credit-scoring system used by the Fair Isaac Corporation to help banks and
other lenders determine a borrower's creditworthiness, can fluctuate for many
reasons. Your debt-to-income ratio, whether or not you make only minimum
payments, how many inquiries you have, new credit cards, and other factors each
play a part in determining your overall score.
But nothing impacts credit scores like a missed payment. Your payment history
accounts for 35 percent of your FICO score. According to the Ask Experian Team, a missed payment will also have the longest
lasting impact. The more recent the missed payment occurred, the greater the
impact and the more missed payments you have, the longer it will take to
restore your scores.
The most recent research on how badly
late payments affect credit scores was performed by FICO's analytics executives
back in 2011. However, the numbers still work. The researchers simulated
various types of mortgage delinquencies and then ran the numbers using three
credit bureau profiles. The consumer profiles scored 680, 720, and 780
respectively before they missed the first mortgage payment. If a borrower were
30 days late on a mortgage payment, their revised credit scores dropped between
600-620, 630-650, and 670 to 690.
For the best-scoring consumers, the
drop in credit scores is the most punishing. The first consumer's credit takes
9 months to return to the 680 level, but the second consumer's score doesn't
repair itself for 2 ½ years. And for the best-scoring consumer? It takes 3
years to restore scores to the 780 range.
In general, the higher the starting
score, the longer it takes for the score to fully recover, says the
Not only does the information stay on
your credit report for years, but if the delinquent homebuyer wants to buy
another home, their scores may keep them from qualifying for good rates.
Borrowers with poor credit may pay higher interest rates, or they could be
refused a loan because they may not qualify for mortgage insurance. In
addition, the borrowers will pay punishing interest rates for all credit,
including car loans and credit cards.
Experian advises delinquent borrowers
to make the account current as quickly as possible. Then they should continue
to demonstrate a current history of on-time payments. Borrowers should use at
least one credit card, paying in full each month to avoid finance charges.
These on-time payments will add positive activity to offset negatives from the
Over time your credit scores will
rebound. The length of time it takes to recover will depend on how serious any
other negative issues were.
by Blanche Evans | To view the original article click here